Economic incentives of agents who run the institution are to enrich themselves and they will either corrupt or prevent other members of the institution who might have the task of stopping the theft. But if corruption is exposed and the disincentives are high, then corruption would cease
Last week, veteran Indian activist Anna Hazare was arrested hours before launching a hunger protest. His cause is corruption. He is demanding that the government pass a stronger law to combat corruption. The government rather disingenuously threw him in prison. Prime minister Manmohan Singh says that Mr Hazare's methods of protest, which includes hunger strike, posed "grave consequences" for Indian democracy.
Still, Mr Singh's remarks and his government's actions are hardly surprising and go to the heart of the problem of corruption. For contrary to its definition, corruption is not a moral issue, it is an economic issue, a law and economic issue.
Laws are provided by the state. Each and every law guides behavior by providing incentives and disincentives. For example a law governing criminal conduct, like stealing, provides the disincentive of incarceration. Some laws provide economic disincentives like fines. Other laws provide economic incentives. An example would be a tax law that provides you with a special tax rate if you take certain actions.
Most legislatures and governments feel that they can solve problems with laws. They can't. There are very real limits to what laws can do. The reason has to do with enforcement. Some laws cannot be enforced. For example, laws relating to certain goods or services like drugs and prostitution are basically impossible to enforce. The reason is that the economic demand for these goods and services are widespread.
Other laws concerning the market are also difficult to enforce. The Chinese feel that they can control inflation with laws relating to price controls, but these always fail. Their attempt to restrict exports of rare earth metals just led to smuggling. Any international investment banker worth their salt can circumvent regulations or utilise regulatory arbitrage to lessen their effect.
The same problem exists with corruption. The problem is that the government is trying to use law to cleanse itself, but that is an enormous conflict of interest. It is really an agency problem.
In game theory, managers, elected officials and even police officers are agents. Managers are the agents of a principal, the owner or shareholders. Elected officials, bureaucrats and security personnel are agents of citizens. The best move for an agent is to cheat the principal. The principal hires a watchdog and the agent's best move is to suborn the watchdog. As long as the institution has the job of policing itself, it will fail. The economic incentives of the agents, who run the institution, are to enrich themselves and they will either corrupt or prevent other members of the institution who might have the task of stopping the theft. So in many ways it does not matter how strong the anti-corruption law is. As prime minister Mr Singh has aptly illustrated, it is not in his best interests to stop what has helped keep his party in power.
This does not mean that citizens are helpless. It does mean that there are limits to what a strong anti-corruption law can do. The solution though might lie elsewhere. The best way to control corruption is to deal with the asymmetries of information and economic incentives. If corruption is exposed and if the disincentives are so high, then the corruption would cease.
Fortunately, we live in a time where each and every owner of a cell phone has access to millions as never before. You don't even need a computer. Your cell phone allows you the ability to network and that power allows all of us to expose corruption. The other part is to provide economic and social disincentives.
One thing that Mr Hazare's campaign has shown is that you can market anti-corruption. But why stop with just hunger strikes or inflammatory editorials? Make it a contest. In the United States and even Afghanistan there are televised contests and prizes for amateur performers. Why not have televised contests for whistle blowers? Whistle blowers, or enforcement personnel, should not only receive some sort of immunity, but celebrity status, cash rewards, honorary medals, titles, sinecures or automatic political office granted not by the government, but by cell phone vote. Cash could be generated by fines from both personal and corporate liability.
Corrupt officials should not be neglected. There should be contests for them as well. The most corrupt official should be the subject of both weekly, monthly and an annual vote for town state and country, perhaps on a specially designated Corruption Day. Annual lists should also include all past year's winners. Shame can be as powerful a disincentive as incarceration.
Stopping and preventing corruption is certainly possible, but to do so we have to recognise the limits of the law. If the institution is corrupt, which it is by definition, so will the law. But that does not mean that society is completely helpless. It just has to know how to advertise.
(The writer is president of Emerging Market Strategies and can be contacted at [email protected] or [email protected].)
India's national security and economic growth are at risk at the hands of a ragtag bunch of pirates, who can reach within miles of the Indian coast and pick up whatever they want, when they want. This is the bigger issue, which gets subsumed while emotions well up on the issue of the seafarers in captivity for months
Twenty-one families all over India must have woken up on Friday, 19 August 2011, breathing a sigh of relief that their breadwinners on board the MT Fairchem Bogey (IMO No. 9423750) were out of the piracy-infested waters in and around Oman. Anchored just about 4-5 miles off Salalah in Oman, the Marshall Island flagged tanker was partially loaded with methanol and waiting to berth inside the port to load some more.
Methanol, without going into details, is as dangerous to transport as petrol, if not more so. And under some circumstances, like if there is a change in pressure or higher ambient temperature, it can be much more dangerous. It's not a job for every seafarer. You certainly have to be one among a special breed of highly committed, experienced and trained seafarers to work on a modern tanker. Carrying methanol puts you a cut above this lot, too, and people who work on such ships are worth every dollar they earn, and more. Put it this way, even without the additional stress and risk of piracy, there is bound to be enough on the minds of the officers and crew on board a methanol carrier tanker ship.
So, when on the morning of Saturday, 20 August 2011, a fairly large group of pirates, in multiple boats, swarmed the Fairchem Bogey, the first thing on the minds of the people on board, over and above their own personal safety, would probably have been to ensure that the ship and the cargo or residual cargo on board did not suddenly become a huge explosion.
There is a huge port nearby, with a big city next to it, and millions of lives to think about. Then, and only after they had taken these precautions, would they have-in all probability-headed for the safe area/citadel on board. By that time it was simply too late. The pirates had taken over, and with guns to their heads, the ship pulled up anchor and set sail in a south-westerly direction towards Somalia.
After all, nobody in their wildest of dreams could have imagined that such an audacious raid would take place hardly 4-5 miles from a port considered to be so safe, that the minimum level of anti-piracy safety also known as BMP-1, was in position at Salalah. Even Mumbai, far away from the piracy lanes, is kept at BMP-3 most of the time. That this part of the world is observing Ramadan is a fact that, also, cannot be overlooked.
BMP (best management practices) for anti-piracy along with some other details are provided here.
Here are some points that must be taken into account.
1) 4-5 nautical miles is less than the distance that you see most ships anchored off the Gateway of India. That's the reality. One of the tourist boats at the Gateway would take an hour or more to cover that distance in good weather and longer during the monsoon. We already know the level of coordination that exists between the authorities if in case something like this happened off an Indian port.
2) BMP levels sound very good on paper, but, in reality, on working ships with bare minimum safe-manning levels, they tend to stress and over-strain the already over-worked staff to a point where there is simply no bandwidth left to do everything that the management ashore recommends. This is specially on ships carrying dangerous cargoes. You simply do not have people left over for security duty, and even if there were, how much can they do with fire hoses? In many cases that this writer has heard of, the pirates simply walk around the seamen with the hose, and cut the hose with a sharp knife. End of resistance.
So now, 21 families are being consoled and counseled, and my contemporaries at the ship-management company (Anglo Eastern, in Mumbai) as well as the Directorate General of Shipping, are again putting into effect their post-piracy processes. This includes ensuring that senior management are in contact with families, offering full support, and now, in the case of some of the better companies, double salaries while under capture by pirates.
There is really no more benefit in hitting the authorities on their heads anymore, for not taking steps which could have prevented such incidents. After all, what good would armed guards with guns be on a tanker carrying methanol? In addition, as has been explained to me, Delhi is deaf to all entreaties and logic as far as trying to explain the connection between piracy in the Arabian Sea and the larger issues of national security and protecting the Indian economy are concerned.
Let's face it, about 6% of the world's seafaring community is from India. About 10% of tanker officers are from India. These numbers are simply not enough to make a dent on anything, even if the Indian government takes some unilateral action in the context of Indian seafarers on Indian or foreign flag vessels.
Next, all calculations on deciding vulnerabilities of ships used to take into account maximum speed, as well as the effect of the ship's wake and bow wave, as she sped past. Now, with this revival of attacks while at anchor, which is one step further into outright hijacks and piracy, a whole new approach will have to be figured out because there are bound to be copycat attacks soon, especially as the monsoon weakens over the Arabian Sea. Incidentally, being attacked while the ship is at anchor is nothing new, but it was usually all about quickly stealing whatever they could lay their hands on and running away.
Yes, ships have been purloined from anchorages in the past-certain liberation movements in neighbouring countries were known to do so, killing the crew members in the bargain and then using the ships for their own purposes. But hijacking a ship for ransom, pure and simple monetary, has not been heard of in a long while, barring the still unresolved case of the MV Arctic Sea which was hijacked from the English Channel a few years ago.
There is really not much one can do or suggest anymore, because the authorities as well as the ship owners and ship managers are comfortable with the concept that the Indian seafarers on board are collateral damage, who knew what they were letting themselves in for when they chose to work on such high-risk ships in high-risk areas carrying high-risk cargoes. However, one can only hope that the ship owners and ship managers offer as much support as possible to the families of the seafarers on board, and more.
Because, this is for sure, the ship and cargo on board is certainly heavily insured for any and all risks. This needs to be extended to the seafarers too. If, at the end of the day, it is all about money for all the players in such episodes (owners, insurers, pirates, cargo interests, and others) then the seafarers need to be covered too. Because, the fact remains, nobody promised us a risk-free career when we came out to sea, lured as much by the glamour as the money. The glamour is now history; so if it is all about money, then so be it. That's as far as the seafarer is concerned.
But the larger picture, the one that the Indian government needs to really get concerned about, is the threat to India's national security and economic growth. Both are now at risk, at the hands of a ragtag bunch of pirates, who can reach within miles of the Indian coast and pick up whatever they want, when they want. This is the bigger issue, which gets subsumed while emotions well up on the issue of the seafarers in captivity for months. And for just that reason, the attitude of the Directorate General of Shipping, ship owners, managers and unions, of keeping everything hush-hush, is almost anti-national. Come out, and be done with it, let the media in on whatever is happening. Because the issues are much bigger.
The bears are in control, but they may find it uneconomical to sell further at lower levels, as a result of which we could see the selling pressure ebb
S&P Nifty close: 4845.65
SHORT term: Down MEDIUM term: Down LONG term: Sideways
The Nifty opened marginally better last week, but relentless selling by the bears as well as capitulation by the bulls saw the Nifty crash 227 points (-4.48%). The breach of the low of the 'high wave line' pattern (which denotes 'equilibrium' between the bulls and bears) also resulted in some panic. The volumes were significantly lower and volatility high. The sectoral Indices which led the decline were BSE Reality (-7.36%), BSE Bankex (-7.51%) and BSE IT (-5.33%), whereas the ones that outperformed were BSE FMCG (-0.25%) and BSE Oil&Gas (-3.11%).
The histogram MACD continues to be below the median line as the trend is down. We saw the Nifty dip below the 200wema and close marginally above it during the week, raising some hopes of a recovery. We saw the S&P Nifty hit the 61.8% retracement (4,842 points) of the rise from 3,918-6,335 points, and lows of 4,675-4,786, that should also act as a crucial support. We can see in the weekly chart (above) that the trendline (in green) pegged at around 4,650 points will also provide support. Therefore, there is strong support pegged slightly lower from where at least a contra-trend rise could begin.
Here are some key levels to watch out for this week.
Despite the bears having an upper hand they should be cautious at lower levels, especially if the Nifty dips to sub 4,900 points level. The reason are that,
1. Eight weeks (Fibonacci number) have been completed from the recent low of 5,195 points.
2. There is support from the lows of 4,786, 4,675, and in a pessimistic scenario 4,538 points.
High volatility will continue this week as the bulls try to stem the rot around the supports.
As was mentioned in the previous week, volatility remained high and the Nifty dipped below the 4,900 points mark, thus bringing it close to the support levels mentioned. The bears are in control but may now find it uneconomical to sell further at lower levels, as a result of which we could see the selling pressure ebb. Those short should cover their positions and only the adventurous ones can do some bottom fishing close to the supports, as the risk/reward ratio would then favour a bounce.
(Vidur Pendharkar is a consultant technical analyst and chief strategist at www.trend4casting.com.)